Quadplex as first deal

[Poem Turner]

This may be a little ambitious......but there's a quadplex I'm considering as a first investment. Because the numbers look like they work.

It's an older property, and definitely a C neighborhood. But a well kept C neighborhood if that makes sense?

The owner is out of state and wants out, badly.

All units are rented and under a reputable property management firm. Wasn't my original plan, but 4 doors an hour away in an older building may be a wise move for the first year.

Roof is 15 years old, 2 HVACs will need replacing soon, and possibly a water heater. I'm angling for a home warranty from the seller. 

All units' floors, kitchens and baths were reno'd in the last year.

I'd appreciate any feedback from those of you with a seasoned eye. Am I being far too hopeful with 5% maintenance and repairs?

Thanks!

[Michael Boyer]

Neat post... 100K fourplexes make me miss Texas... like 80's country music...

I have an older fourplex in a working class area, the repair/maintenance may depend on how much you do yourself/hire out and labor rates there... To be safe on an older one, where you may hire out work, and when estimating for a purchase, I would go more like 10% (there is also a Rental Property Calculator on the tool bar above FYI that is pretty snazzy and I think you get one freebie on it)...

Also, one cost that is becoming very clear to me (and one I suggest all newbies studies) is the old hobgoblin of capital expenses (CapEx) and how you want to set aside reserves for the replacement of major items on the property (like the roof you mention) that hit the end of their useful life... It is hard to explain, but I can feel both my fourplex producing positive cash flow, but some of it is illusory as the parking lot is a few years away from being replaced, the decks a few more, the windows, and much more... So I try and set aside money for these that feels like mine but I know will need to be plowed back.

The capital reserves you set aside (called CapEx) are not so much about a needed repair (which you asked about) but funding a major future project. By setting aside an amount monthly, ideally you cover the cost when the item needs to be replaced. There are even formulas and charts...

But after a decade I see Cap Ex is a fickle and sometimes arbitrary mistress, and sometimes you have to have the money or else (like to prevent roof failure) but other times, like with my 80's cabinets that I refinished (and they still get compliments), things can go safely and usefully past their useful life (80's brown shag carpet anyone? that stuff was bulletproof and I think I have a couple of rooms left in my property portfolio, it won't die, like Methusela flooring--Cap Ex be damned... ) Similarly, the more I learn about concrete, I can mix and cure it to last longer than I can ever expect to live (again useful life be damned)... and if you are patch, repair, OCD maintenance landlord, you can cheat it some extending the useful life of many items (though you could argue the labor and repair is the input of the Cap Ex money, but mostly my own elbow grease, and I get some exercise to boot)...

So I like your start alot (ahead of me when I looked at my first rental long ago!) and think you have a neat idea...I would research the property's needs and condition (as you seem to have sagely started) and calculate CapEx on a monthly basis into your equation (the article linked below shows a sample Cap Exchart) and see the many BP forums on Cap Ex.

Brandon Turner is a gifted real estate writer and explains estimating Cap Ex better than I could here (on How to Estimate Future CapEx Expenses on a Rental Property):

https://www.biggerpockets.com/renewsblog/2015/10/1...